Yesterday’s PPI data was not at all a net positive, despite the initial headline, and the initial reaction of bonds and stocks.

Energy prices got the blame, as if that’s any surprise. If I told you a year ago that $58 Oil would be a relief to the market, you would have told me I was high on petroleum distillate fumes.

Retail sales data was also improved. I wonder why they don’t report THAT data point ex-food and energy.

Perhaps its because of the sub-sector "Non-Store Retailers;" It was up +1.2% (versus prior +0.1%). What’s in this category, you ask? Lots of odd stuff, but the one item that stuck out like a sore thumb was this:

“Establishments engaged in the direct sale of products such as home heating oil dealers . . . are included in this sub-sector.

So we take out energy so as to not show inflation, but we keep it in to show good retail sales. Note that the same sleight of hand is performed by some pundits regarding S&P500 earnings. (At least their hypocrisy is consistent).

The quandry for manufactures with producer prices is what to do with
the cost increase: Pass it along, and risk losing some sales — or, eat
it, hurt margins, and risk profits.

This risk to P/E is is why accurate and consistent data reporting is so important for investors to understand.

"Higher natural-gas and electricity prices pushed up wholesale
inflation last month, while falling gasoline prices and lower demand for new
cars obscured an otherwise strong month for the nation’s retailers.

The Labor Department said Tuesday its producer price index for
finished goods rose 0.7% on a seasonally adjusted basis after a 1.9% increase in
September. But the "core" producer price index, which excludes volatile food and
energy prices, fell 0.3% after a 0.3% rise in September. That was the biggest
monthly drop since April 2003, when the core price index fell 0.5%.

Prices for goods in the production pipeline rose. Semi-processed
good prices rose 3%, higher than September’s 2.5% increase, in the biggest
one-month gain since August 1974. Raw materials costs rose 6.7% in October, down
from 10.2% growth in September.

"Consumer confidence is fading and it is expensive to simply
drive to the mall, but that has not stopped households from partaking in their
favorite pastime: Shopping," economist Joel L. Naroff of Naroff Economic
Advisors wrote in a note to clients."

>

Bottom line:
Inflation remains robust, there is some limited ability to pass price increases along, the consumer continues to spend regardless of debt and energy prices.

"Look at the Intermediate prices because that’s where you’re supposed to look to gauge what kind of pricing pressures are in the pipeline. Intermediate goods prices were +3.0%, reflective of a 9.3% increase in energy prices.

And if you want to look further down the road, Crude goods prices overall were +6.7% for a +31.5% y/y zinger. Natural Gas? How about +20.3% in October following +30.5% the prior month?

Of course, you, as analyst of the data, can back that out if you want. But the Producer can’t . . . Back this out."

Please use the comments to demonstrate your own ignorance, unfamiliarity with empirical data and lack of respect for scientific knowledge. Be sure to create straw men and argue against things I have neither said nor implied. If you could repeat previously discredited memes or steer the conversation into irrelevant, off topic discussions, it would be appreciated. Lastly, kindly forgo all civility in your discourse . . . you are, after all, anonymous.

Are consumers really as dumb as we make them out to be? Have they become “spending automatons” as I’ve said elsewhere on this blog?

My hunch is that they know everything will end soon. Mortgages and home equity loans won’t command as good rates as they have in the past. Buying stuff with credit cards will become more expensive too. So, my hunch is that they’re moving their purchases ahead before things get worse–and by looking at measures of consumer sentiment, I suspect they see things getting a whole lot worse.

It’s like those ridiculous “Employee Discount” programs the automakers ran. With the benefit of hindsight, they generated few new additional sales. What they did instead was move many sales forward when conditions were more favorable. But now, they are paying for it bigtime.

Mr. Ritholtz, please update those personal bankruptcy and credit card default statistics that you post from time to time. It’d be interesting to see how the tighter bankruptcy laws have affected spendthrift consumers!

By “rates down” i meant, if bonds are up and US breakeven inflation is down, and the Euro HICP wasn’t hot, then this all suggests that gold wasn’t up on today’s inflation data… nor was the rise attributable to a dollar move. The only tangible bullish factor today was the lower rates, but this doesn’t account for the magnitude of the move.

So.. i am left with more buyers than sellers.. BIG buyers i would guess, as in central banks.

Does it possibly remain elevated when more comprehensive measures of inflation go down, when long-term inflationary trends end ? If that’s true, it would certainly change our understanding of the current CPI’s separation from reality. Data, anyone ?

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About Barry Ritholtz

Ritholtz has been observing capital markets with a critical eye for 20 years. With a background in math & sciences and a law school degree, he is not your typical Wall St. persona. He left Law for Finance, working as a trader, researcher and strategist before graduating to asset managementRead More...

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